MISSION The Bureau of Engraving and Printing develops and produces United States currency notes trusted worldwide. CORE VALUES Integrity • Fairness • Performance • Respect VISION The Bureau of Engraving and Printing is a world-class securities printer providing our customers and the public superior products through excellence in manufacturing and technological innovation. ABOUT THE COVER The cover depicts some of the key processes that are integral to the production of US currency notes. This includes (clockwise from top left) the intricate details of the engraved Benjamin Franklin portrait for the NexGen $100 notes; inspection of an electroplated intaglio plate; visual quality inspection of NexGen $100 32-subject Intaglio sheet after back printing; and an example of continuous quality assurance as shown by an ink viscosity test being performed using a rheometer in the BEP Quality Assurance Ink Laboratory. 2016 CFO Report Bureau of Engraving and Printing 1 Director Len Olijar proudly presented the Department of State Under Secretary for Management Patrick Kennedy with the new Great Seal dies for approval. The Department of State, the official keeper of the seal, contacted BEP regarding reproduction of the seal. BEP reproduced the seal with its original and emboss- ing dies including fixtures. Director Len Olijar presents Joseph Corbo from the Office of Facilities Support with the Director’s Award for Excellence at the BEProud Awards Recognition Ceremony. 2 Bureau of Engraving and Printing 2016 CFO Report Table of Contents Message from the Director ................................................. 4 Message from the Chief Financial Officer...................................... 5 Highlights of the Year..................................................... 6 Profile of the Bureau of Engraving and Printing ................................. 8 Executive Organizational Structure...........................................11 Safety, Health and Environmental Management................................ 12 Strategic Plan ...........................................................15 Retooling and Business Transformation ...................................... 17 Currency Quality Assurance Program ....................................... 19 Program Performance Measures ............................................ 22 Management Discussion and Analysis ....................................... 25 FMFIA Plans and Accomplishments......................................... 28 Custody of Assets ....................................................... 30 Assurance Statement ..................................................... 31 Summary of OIG and GAO Audits ......................................... 31 Independent Auditors’ Report.............................................. 34 Financial Statements ..................................................... 36 Notes to Financial Statements.............................................. 39 Management’s Report on Internal Control Over Financial Reporting ............... 49 Independent Auditors’ Report on Internal Control Over Financial Reporting ......... 50 Independent Auditors’ Report on Compliance and Other Matters .................. 52 2016 CFO Report Bureau of Engraving and Printing 3 Message from the Director The Bureau of Engraving and Printing (Bureau or BEP) achieved significant opera- tional and program results in 2016 and is poised for strong results for years to come. BEP continued to move forward as a world-class leader in securities manufacturing by investing in its people and technology, accelerating process improvement, and pursu- ing cutting edge research and development of new counterfeit deterrent technologies. Concurrently, we continued to collaborate closely with our partner, the Federal Reserve Board, to strengthen BEP’s Currency Quality Assurance (CQA) program and engaged with Treasury to develop a new human capital strategy, while proceeding with a multi-year, major retooling of the Bureau’s entire manufacturing platform. During 2016, the Bureau delivered 7.6 billion Federal Reserve notes to the Federal Reserve Board, on schedule and under budget, while meeting or exceeding the Board’s high quality standards. Additionally, a major milestone event for the Bureau, Treasury, and the Nation was the Secretary of the Treasury’s announcement that the next redesign of currency will feature the portrait of a prominent woman on the face of the new design for the $20 note. BEP is bring- ing together the necessary technology, science, and skilled and talented workforce to meet the challenges of designing the next generation of currency notes that continue to be safe and secure while improving accessibility for all users. BEP had tremendous success during the past year in its multi-year research and development program for the next redesign of US currency which is expected to go into production in the next three-to-five years. BEP expanded the security feature development pipeline as contracts were awarded for seven new security features and further develop- ment of two already in the pipeline. In addition, six new security feature concepts were added to the concept stage. Six of the security features placed under contract are public features, an area that the Federal Reserve Board and US Secret Service have requested that BEP focus on. The effectiveness of BEP’s research and development efforts are ultimately revealed by the performance of new design currency notes circulating in day-to-day commerce. For example, the redesigned $100 note continues to show remark- able counterfeit deterrence. This note is the first to include a robust, state-of-the-art 3-D security ribbon utilizing micro-lens technology. This feature has not been successfully simulated, resulting in the lowest level of counterfeiting seen on the $100 note in over 20 years. Similarly, counterfeiting levels (notes passed into circulation in the US) on all denominations fell by an average of 8%, which was the first decrease in counterfeit notes passed domestically in more than five years. In addition, the level of counterfeit notes passed outside the US fell by more than 70%. BEP’s most valuable resource is its workforce. In 2016, the BEP developed and began implementation of its first ever Human Capital Strategic Plan. The Plan establishes human capital strategic goals and initiatives for the next five years. The impetus for the plan is to create a motivated and productive workforce through employee engagement initiatives, performance accountability, and leadership effectiveness and employee development. Key human capital initiatives begun in 2016 include an Apprenticeship/Upward Mobility program; Leadership Development; Workforce Planning; Competency Modeling; and Knowledge Management. The organization’s success in setting a global standard for the production of distinct and technologically sophisticated currency notes has rested on the unique skills, craftsmanship, determination, and dedication of our employees. The Bureau is extremely fortunate to have a focused and dedicated group of professionals at every level. They are a diverse team of employees united by a resolute commitment to excellence. Together we will continue to upgrade our technol- ogy, and improve work processes and quality performance to produce and deliver world-class currency befitting our rich tradition of excellence. 4 Bureau of Engraving and Printing 2016 CFO Report Message from the Chief Financial Officer I am pleased and privileged to present the Bureau of Engraving and Printing’s (Bureau or BEP) Performance and Accountability Report for 2016. As the Bureau’s Chief Financial Officer for the last four years, I am especially proud of this year’s accomplish- ments, and I am committed to helping the organization reach even higher levels of excellence in 2017. In 2016, we continued a commitment to excellent and strong financial management, timely and accurate financial reporting, and continual improvement at the Bureau. This tradition of quality financial management resulted in an unmodified audit opin- ion on the Bureau’s financial statements for the 32nd consecutive year. Also, the Bureau received an unqualified opinion on its internal controls over financial reporting based on the criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO framework). Both opinions exemplify our commitment to maintaining unparalleled excellence in financial reporting. The financial statements and annual audit are important elements in the stewardship of the Bureau’s revolving fund. The annual audit and opinion on internal control over financial reporting help to ensure the integrity of the revolving fund, as well as the reliability of financial data used for managerial decision-making. In 2016, the Bureau delivered 7.6 billion currency notes to the Federal Reserve Board, resulting in revenue of $681 million and an excess of expenses over revenue of $21.3 million. The excess of expenses over revenue was planned based on lower working capital requirements. The Bureau continued a multi-year recapitalization of its Washington, DC and Fort Worth, Texas facilities. Invest- ments in new production and test equipment is improving productivity, reducing the Bureau’s environmental impact, and will provide the capability to produce increasingly sophisticated and complex currency designs. An example of our commitment to the environment that will also yield significant cost savings is our current